Scott Burns: Simple test can determine if you’re wealthy

You’ll
know if you are wealthy depending on your answers to a simple four-question
test later in this column.

Who
knows, you might be wealthy and not know it. You could also be poor and not
know it, which is more likely.

The
problem here is that we don’t have a shared definition of wealth. In spite of
the unrelenting attention to spending, consumption and statements of net worth
that fill virtually all of our glossy magazines, the reality is that we see
only wishful images of what some people imagine wealth to be and what
advertisers want us to think it is. In general, being wealthy appears to be all
about stuff.

In fact,
if you focus on the stuff part, you’re missing the boat. A definition of wealth
that I favor comes from the late economist and journalist Ferdinand Lundberg.
In his 1968 epic The Rich and the Super-Rich, he defined being poor
this way:

“For my
part, I would say that anyone who does not own a fairly substantial amount of
income-producing property or does not receive an earned income sufficiently
large to make substantial regular savings or does not hold a well-paid securely
tenured job is poor. He may be healthy, handsome and a delight to his friends —
but he is poor.”

Got that?
Wealth is about income-producing assets; it’s not about consumption stuff.
Lundberg’s definition quickly eliminates the faux wealth exhibited by the folks
we might call Monthly Payment Millionaires — people who flash all the stuff
that makes them appear wealthy but which can disappear in a single missed sales
quota, a short-term job loss or some other life hiccup. The existence of
Monthly Payment Millionaires explains those strange places where it seems everyone
is rich because all the cars are new, shiny and expensive.

Lundberg’s
definition shifts our attention from having the stuff of imagined wealth to
having secure sources of income to support however we happen to live.
Lundberg’s definition is a first step in breaking the link between the work we
do and the life we live. As long as there is a link, we’re working stiffs. We
may proudly drive our Ferrari to a reserved parking spot near the elevator, but
we’re still working stiffs if keeping the Ferrari requires showing up for work.
(Readers curious to know how they score for net worth should see my regularly
updated wealth scoreboard.)

So here
is my four-question wealth test:

Do you
make payments on your house or car? If you answered yes, it’s unlikely you are
wealthy, although exceptions can be made for car loans where the interest rate
is lower than the rate of inflation. According to the most recent data on
consumer debt, older people are carrying more debt into retirement, not less;
so fewer retirees can be considered wealthy.

Does your
interest income exceed what you pay in interest? With the Federal Reserve
holding interest rates down, it isn’t easy to find interest income these days,
but dividends are an acceptable substitute. If you answered yes because you
have income from dividends, rental properties, pensions, or even patents,
copyrights and royalties on your country-and-western song portfolio, that’s a
pretty good sign that you are a budding rentier — a person who lives on
non-work income. The more income you have from sources that don’t involve
working, the closer you are to being wealthy. For retirees, Social Security can
be a big part of this income.

Can you
keep what you have without actually working? If losing your job means the repo
guy will be visiting in a matter of days, you’re definitely not wealthy. But if
you can answer yes to this question, you’re definitely not poor. At very worst,
you have a foothold among the wealthy.

You are
at a cocktail party and a stranger asks, “What do you do?” If you answer this
with any known occupation, you are not wealthy and you’re probably a
workaholic. You’re still a working stiff, even if your job is, as Lundberg
suggested, “a well-paid securely tenured” one. The only acceptable answer here
is to remember your Jane Austen. Give the stranger your best disdainful Darcy
look and say, “In the event of what?”

SCOTT BURNS is a principal of the Plano-based
investment firm AssetBuilder Inc.

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